New NFT exchanges don't enforce creator royalties, hurting artists and imperiling the NFT space's existence
Limit Break has a freedom-preserving opt-in solution that has incentives for traders and artists.
The programmable smart contract at the heart of Limit Break's solution allows artists to get creative with rewards, aligning owners with the project's best interest.
The controversy over NFT royalties is an existential crisis to the industry. In 2021, artists flocked to NFTs with the promise of equity in the future market for their work. Small royalty % of sales are the life blood of the creators who built the space. While the blockchain is immutable, it came as a shock to most artists when it was revealed that royalty fees were NOT etched into the digital stone of Ethereum’s ledger. In reality, OpenSea, the market that dominated the early NFT boom, was collecting and disbursing royalties in a “web2 way.”
A month ago, around 75% of NFT buyers opted-in to paying royalties on x2y2, when given the choice.— NFTstatistics.eth (@punk9059) October 28, 2022
Now that number is around 18%
The idea of "tip jar" royalties where buyers can opt-in or opt-out will likely prove to just be a 0-royalty policy over time
Free riding is too easy pic.twitter.com/BAG9VfI18q
Flash forward to 2022, platforms like Blur and Sudo Swap allow traders to avoid royalty fees. Traders can keep all their NFT gains and artists are left with nothing. The disturbing trend is that royalty fees are steadily declining as most traders opt to save 5-10% on their trades. If royalty fees disappear, artists and projects will bring their work to different platforms–this would be the death of the NFT space.
Up until recently, there were no clear solutions to the “royalty problem.” In December OpenSea made headlines with its poorly received answer to the problem. The exchange now uses a blacklist that protects creator royalties… with the side effect of creating a restrictive and monopolistic trading landscape that is anathema to the freedom-loving, regulation-free ethos of web3. But now there’s a new solution.
Remember why this is all happening: OpenSea is losing market share to other marketplaces that are excising creator royalties. So, this solution is a convenient value proposition. It blocks their competitors AND ensures that artists on their platform get paid on secondary sales.— bobbyhundreds (@bobbyhundreds) November 6, 2022
Limit Break’s novel opt-in approach to preserving royalties maintains freedom while incentivizing creators AND traders. Best of all, this approach works for existing NFT collections as well as future drops. Essentially, an artist can use Limit Break’s tools to create a smart contract. Traders can opt in by staking their NFT in the contract. Traders receive a wrapped token that they can then use as a proxy for their original NFT. When traders sell the wrapped token, the smart contract releases the NFT to the new owner. The contract then pays the creator royalty and the rest goes to the trader.
Now the big question is “Why would a trader willingly opt in for less money?” The answer is that, through the many programmable options in the Limit Break contracts, artists can choose to incentivize traders by giving them… a lot of things! Artists can choose to share a % of future royalties with the trader. Artists can give traders airdrops for staking. In the case of gaming assets, staked tokens could be rented for passive income.
1/ @LimitBreak is excited to announce OPT-IN, BACKWARDS-COMPATIBLE PROGRAMMABLE ROYALTIES POWERED BY STAKING. Read the complete blog post here:https://t.co/nxtArtLV1K— Gabriel Leydon (FREE,OWN) (@gabrielleydon) January 10, 2023
New collections have the advantage of full control of the supply of NFTs; one novel way to guarantee use of the staking contract is through reveals. After mint, an artist can elect to keep a collection’s art hidden until staked. Once an owner stakes their NFT, they get to see their piece of the collection for the first time!
Other interesting mechanisms of the Limit Break staking solution are affiliate royalties and conditional royalties. The affiliate marketing game is massive for influencers–think of all the links your favorite Youtuber has in their video description. Limit Break can cook up affiliate royalties so that an influencer can bring sales to a project in exchange for a share of profits. Conditional royalties empower artists to influence owner behavior in a way that helps the project. The biggest example of this is offering a profit-share in the sale of an NFT if the owner holds the NFT for a certain amount of time. These examples are just the tip of the Limit Break iceberg. With all these options, it is easy to imagine Limit Break being adopted by a lot of collections.
The best part about this is that it's OPT IN, meaning holders have free reign to unstake and control their assets— EllioTrades (@elliotrades) January 10, 2023
Royalties will propel the space forward much faster if preserved
Gabe gets this and we are happy to see him contribute a solution https://t.co/KMVU98NfXw
Another factor playing in Limit Break’s favor is that it was created by the popular Digidaigaku team headed by Gabriel Leydon. As a free-mint project, Digidaigaku is an example of a project that relies on creator royalties to survive. This gives credibility to the win-win promises of Limit Break. Additionally, the freedom of choice inherit in Limit Break’s optional opt-in mechanics is in-line with web3 culture.
Limit Break’s solution to the NFT royalty crisis is currently the best answer to a very tricky issue. The hope is that, by aligning the incentives of owners and creators, Limit Break can guarantee the health of the NFT ecosystem for 2023 and beyond.